Service Industries Expand at Faster Pace

A gauge of growth in the U.S. services sector was modestly stronger than expected in February, helped as an index on employment rebounded from recent weakness.

The Institute for Supply Management on Wednesday said its services index was 56.9 in February, up slightly from 56.7 in January. Analysts were looking for a reading of 56.5, according to a Reuters poll.

The survey's employment index jumped to 56.4 from 51.6, moving from its lowest level since February 2014 to its highest level since October. One component, prices, rose but stayed under the 50 level that separates expansion from contraction, while two other components — order backlogs and imports — returned to expansionary territory after a recent contraction.

The rise in the overall index came despite a deceleration in business activity. That subindex fell to 59.4 from 61.5.

Meanwhile, a separate industry report showed growth in the U.S. services sector accelerated modestly in February, lifted by improvements in new business.

Financial data firm Markit said the final reading of its Purchasing Managers Index for the services sector rose to 57.1 in February, its highest level since October. The reading was roughly even with the preliminary read of 57.0 but up from the 54.2 recorded in January.

A reading above 50 separates expansion from contraction.

The new business subindex jumped to 57.1 from January's read of 51.7, the index's lowest reading in the history of the Markit services sector series, which dates from October 2009. The final number was also up from the preliminary read of 56.7.

"Business picked up especially towards the end of the month, when the impact of bad weather on the East Coast and port delays on the West Coast began to clear, which suggests this may be a temporary upturn," said Chris Williamson, chief economist at Markit.

Williamson said the current pace of expansion would not lead the Federal Reserve to raise interest rates "anytime soon."

"However, the ongoing resilience of the U.S. economy, and in particular the sustained robust job creation signaled in February, adds to the sense that policymakers will continue to prepare the ground for a rate rise later this year."

The employment subindex rose from January but was down from February's preliminary reading.

Markit's composite PMI, a weighted average of its manufacturing and services indexes, rose to 57.2 in February from 54.4 in January. The preliminary February read was 56.8.